Why Does Ascendas India Trust Prefer To Maintain Its Listing In Singapore
Chief Executive Officer Sanjeev Dasgupta remains positive about growth in India as a-iTrust aims to expand its commercial space in the country by 60% in the next 3-4 years.
Ascendas India Trust (a-iTrust), listed in Singapore in 2007, has no immediate plans to move its listing to India because the process will entail considerable risks and costs.
“One big challenge for Indian REITs is the cost of financing, which is usually higher than the cost of buying an income-producing asset, and that negative carry makes it difficult to acquire accretive assets, at least in the first few years. Gradually as the rentals go up, the yields will go up, but at the initial stage, it can be challenging,” he says. There is no simple mechanism to transfer the listing; however, we are closely monitoring REIT developments in India, according to Dasgupta.
India’s first REIT, the Blackstone Group-backed Embassy Office Parks, made its trading debut on April 1 this year. For a-iTrust to transfer its listing to India will involve taking its Singapore’s entity private and then re-listing in India. Dasgupta added that unless the valuation of a listing in India is “a lot better” than in Singapore, the company will find it difficult to justify transferring its listing to India. Another critical driver of maintaining its listing in Singapore is the city state’s robust governance framework and reputation as a REIT listing destination, he says.
Nevertheless, Dasgupta is encouraged by the developments in the India REIT market. “The introduction of a REIT market in India would lead to enhanced transparency and governance in the real estate sector and a greater inflow of institutional funding, which would be beneficial to the economy,” he says.
Currency Hedge and Narrow Credit Spreads
To overcome the cost of funding in India, a-iTrust hedges its offshore currency exposure.
“Funding offshore in various currencies such as SGD and JPY and then hedging them into rupees allows us to achieve a lower cost of financing. Even after taking into account the cost of hedging, there are significant savings for us between the cost of financing in India and Singapore. For an entity like us, this is important, given that REIT vehicles are continuously raising capital both in the form of debt and less frequently in the form of equity,” explains Dasgupta.
He added that credit spreads on its loans in the last few years had been reduced due to its robust business performance, strong track record and financial credibility. “It also helps that a-iTrust is managed by a strong sponsor, Ascendas-Singbridge Group, which holds a 23% stake in the Trust,” says the company.
a-iTrust has seven IT parks and six warehouses in the South Asian country with a total floor area of 12.6 million sq. ft. The assets are spread across Bangalore, Chennai, Hyderabad, Pune and Mumbai, and a-iTrust is planning to increase its floor area in the country by approximately 60% in the next 3-4 years.
Development Limit
a-iTrust was structured as a business trust when it went public more than a decade ago instead of a REIT.
Under Monetary Authority of Singapore (MAS) rules at that time, trusts could only be listed as a REIT if the proportion of assets under development as a ratio of its total portfolio value was under 10%. A-iTrust had a development limit of 20% to cater for the large development land potential in its parks. In 2015, MAS raised the development limit for REITs to 25%, subject to conditions.
As REITs in Singapore lobby for a higher gearing limit from the current statutory requirement of 45%, Dasgupta’s view is that regulators could consider allowing market forces to determine the optimal level of debt. “The market is often the best judge because if a particular REIT is highly geared and seen to be risky, investors will sell the units,” he says, adding that in the U.S., the world’s biggest and most mature REIT market, there is no leverage cap for REITs. “I think the market enforces its own rules particularly in the listed space,” he says. a-iTrust’s gearing is at 31%, as of March 31, 2019.
Expansion Plans in India
As India’s economy continues to grow around the 7% mark, a-iTrust, which has about S$1.9 billion of assets under management, plans to expand further in the country. “We will continue to grow with our existing strategy of developing the remaining land bank on our existing parks and making accretive acquisitions,” says Dasgupta. He also added that the company would be interested in other asset classes besides IT parks, offices and warehouses, such as data centres. The company recently entered into the logistics market, tapping the rise of e-commerce and investments in manufacturing.
On its growth strategy, Dasgupta says the trust has about 7.1 million sq. ft. of assets under development, and it will continue to be on a lookout for third-party assets. Of the 7.1 million sq. ft., about 1.2 million sq. ft. has already been leased.
“Demand has consistently outpaced supply over the last few years,” says Dasgupta. Across its portfolio, the committed portfolio occupancy rate has risen to about 99% as at March 31, 2019, supported by a robust outsourcing and offshoring sector as well as the e-commerce and the co-working industries.
